Is Staples' (SPLS) Fate Stapled Shut?

Staples (SPLS), the largest office retailer in the United States, plunged 16% after it reported dismal second quarter earnings that caused investors to question the future of the troubled company. The company reported earnings of $0.16 per share, or $102.5 million, down from the $0.18 per share, or $120.4 million, it reported in the prior year quarter. Revenue declined 2% to $5.31 billion, exacerbated by a big 8% plunge in international sales.

Analysts on average had expected Staples to earn $0.18 per share on revenue of $5.37 billion. Same-store sales dropped 3%. Daily Chart

For the full year, Staples expects its top line to decline at a "low single-digit" percentage, compared to its prior forecast for a "low-single digit" rise in May. Analysts had only expected a year-on-year sales decline of 1%. The company also slashed its full-year earnings outlook from $1.30-$1.35 per share down to $1.21-$1.25 per share, far below the consensus estimate of $1.32. That big miss on the top and bottom lines raised serious concerns about its international business, which has been a consistent drag on its bottom line. During the quarter, poor sales from Europe and Australia resulted in the closure of 49 European stores, where sales declined 6%. On the bright side, Staples has consistently outperformed its primary domestic rivals Office Depot (ODP) and OfficeMax (OMX) in the United States. Office Depot and OfficeMax are scheduled to merge later this year. There are also concerns that a decreasing dependence on traditional office products like paper, pens and stationery has taken its toll on all three companies, as an increasing number of consumers opt to use tablets and smartphones instead."Paperless workplaces" are also gaining traction in America, as an economical and eco-friendly way to avoid costly paper waste. In addition, physical office supplies are now more frequently ordered online. According to a survey conducted by Deutsche Bank, Amazon's (AMZN) average price for office supplies was on average 26% lower than prices offered by Staples, Office Depot and OfficeMax. Amazon's prices for high margin ink and toners was also 36% lower. Staples already has 5% to 7% lower prices than Office Depot and OfficeMax, meaning that there isn't much more room for margin-crushing price reductions in the near future. Although the future looks bleak for Staples, some analysts are still moderately bullish on the stock. BB&T Capital Markets analyst Anthony Chukumba said that Staples' results "while disappointing, were not entirely surprising given the still tepid U.S. macroeconomic environment and even worse conditions internationally." Chukumba believes that Staples' efforts to cut costs and the merger between Office Depot and OfficeMax could help stabilize the company's top and bottom lines. Other News About SPLSIt's Not Easy Being Staples Is there any hope for the troubled big box retailer? Staples Misses Estimates, Stock Hammered Staples crashes on sour earnings. Other Stocks in the NewsIs This Experimental Lung Cancer Drug Back on Track? Will this new lung cancer drug be a game-changer? The Past, Present, and Future of Alzheimer's Treatments Are we getting anywhere with the quest to cure Alzheimer's? Copyright 2013 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Aug 29, 2013

By Leo Sun

Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.